Why Industrial Policies Fail: Limited Commitment.

The strategic effects of subsidies on output and subsidies on investment differ substantially in dynamic models where a government's commitment ability is limited. Output subsidies remain effective even as the period of commitment vanishes but investment subsidies may become completely ineffective. This difference has been obscured because most existing models of strategic trade policy are static. Copyright 1995 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.